Latvian Prices Look Higher in Euro

RIGA, Latvia–Latvian residents are dealing with a serious case of sticker shock three months ahead of entering the euro zone.

The beginning of October represents the beginning of a new era for the Baltic state, as the nation’s shopkeepers are mandated to begin posting prices in both the traditional lat and the currency bloc’s euro. The currently-used lat will be phased out in favor of the euro next year.

Latvia is one of the few nations to transition to the euro where the incoming currency is actually a multiplier of the prices charged in the outgoing one. One lat amounts to 1.42 euros.

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Juris Kaza for The Wall Street Journal

A part-time worker updates pricing at a family-owned snack bar and exotic ice cream parlor in Riga. A scoop of bleu cheese ice cream with forest berries and a dab of chocolate sauce goes for 0.80 lats, or 1.14 euros.

On Tuesday – which the Latvian government coined “Honesty Day” – Latvians were able to see how this actually played out. A company offering unlimited domestic calls on pre-paid mobile phones, for instance, went from charging 2.81 lats per month to €3.99; a ten-ride e-ticket on Riga’s public transport went from a mere 5 lats to a hefty €7.10.

Prices, in theory, have not really changed. The whole point of Honesty Day was to show how the 0.70248 lats-per-euro exchange rate plays out in the real world. Regardless, the resulting 42% rise in prices still raised eyebrows.

Latvian’s have some time to fully digest the shift. The official change takes place January 1, and stores can continue showing dual prices until June.

Latvia isn’t the first euro zone entrant to deal with this issue. When Ireland switched from the punt to the euro in 1999, the rate was €1.27 per one punt. For Cyprus in 2008, it was even more dramatic – €1.70 to the Cypriot pound.

But many nations have dealt with the reverse. In Italy, for instance, the euro was converted at a rate of over 1,900 lire, so prices seemed to fall almost two thousand fold when euro notes and coins were introduced in 2002.

In Latvia, it isn’t just everyday shoppers dealing with seemingly bigger numbers.

On Tuesday, the Latvian parliament received its first euro-denominated budget proposal. What would have been a 5 billion lat tab for 2014 became a €7.14 billion budget using the standard conversion.

“It’s so big,” said Latvia’s Finance Minister Andris Vilks when asked how he felt about submitting his first euro budget proposal for 2014 to Latvia’s parliament. The budget will be debated by lawmakers starting Thursday.

Honesty day has meant a bit of extra work for businesses. While some stores in the capital city of Riga had not yet dual pricing sheets (with the price in lats mandated to be physically bigger than the price in euros), others were scrambling to comply.

At a pharmacy owned by the Benu chain, three pharmacists were busy putting new price tags on packages of a wide range of creams, tablets, food supplements and other over-the-counter remedies. Usually, the pharmacy is manned by one person.

At a family-owned snack bar and exotic ice cream parlor that serves flavors ranging from horseradish to bleu cheese, a part-time clerk had spent her Sunday making new hand-written dual currency price lists. The list, scribbled on a chalkboard, hung on the wall and gave two prices for daily specials.

Latvia’s Internet retailers have also been told to make the switch, and in some cases the process appears to be relatively easy as prices can be changed by clicks of a mouse, not requiring new stickers on thousands of items. E-commerce sites could also simply place a conversion calculator on their home page.

Local media, however, that there had been some 50 complaints about price labeling to the Consumer Rights Protection Center, a government consumer protection agency. The CRPC can impose fines for willful and repeated inaccurate price labeling, but the center has said it will be difficult to take action on all the complaints.

“Latvia is a market economy state and action to patronize or not patronize a merchant who raises prices is only up to the consumer,” Dace Kalsone, euro-project manager at the Ministry of Finance, said in an email. “We strongly urge customers to patronize ‘Honest Euro Implementers,’ or merchants who have signed a pledge.”

Comments (2 of 2)

The European Union should require Latvia to restate its financial statements going back to 2008 before allowing Latvia to enter the Eurozone. The 2008 bailout of Parex Bank should have been accounted for as an "expense" instead of a "loan." And the 2009 sale of Parex shares from the government to the EBRD should have been accounted for as a "loan" instead of a "sale" since a leaked document indicates that the "sale" will be reversed in 2014. The Youtube video "Latvia EBRD Fraud 2013" has the full explanation and evidence.

4:16 pm October 2, 2013

Michael W. not Diane or Mike wrote:

A scoop of specialty ice cream for €1.14 seems like a very fair price.

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